Social Safety Net Programs, Human Capital, and Behavioral Biases: Evidence from Supplemental Security Income (SSI)

Supplemental Security Income (SSI) provides cash payments to 1.3 million low-income families with disabled children. Each year, 50,000 SSI children turn 18 and must re-qualify for benefits based on adult medical criteria. Nearly 40% of SSI children and 70% of those with mental and behavioral conditions fail to re-qualify at age 18, losing the $9,000/year cash benefit and Medicaid eligibility. Safety net programs, such as SSI, can affect the human capital development of recipients through various channels. For example, cash transfers may reduce current human capital investment by decreasing current or future expected work activity. In addition, these programs may reduce the return to human capital investment by imposing marginal tax rates on earnings or requiring that recipients demonstrate low human capital (e.g., disability). Behavioral biases can amplify or dampen these effects. For example, if recipients are unaware that their benefits are taxed when earnings increase, then the incentive effects of a program are smaller than under perfect information.

Despite substantial research on many social safety net programs, the role of behavioral biases in exacerbating or decreasing these effects is not well understood. Economists Manasi Deshpande and Rebecca Dizon-Ross will use insights from behavioral economics—specifically, how correcting biased beliefs can change behavior—to evaluate the effect of information about SSI on human capital investments.